The
Global Settlement was an enforcement agreement reached on April 28, 2003 between the
SECThe U.S. Securities and Exchange Commission is a federal agency which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States...
,
NASDIn the United States, the Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a self-regulatory organization . FINRA is the successor to the National Association of Securities Dealers, Inc. ...
, NYSE, and ten of the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
's largest
investment firmsIn financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
to address issues of
conflict of interestA conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
within their businesses
Settlement Decision
The central issue at hand that had been judged in court previously was the conflict of interest between the
investment bankingAn investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
and
analysisA financial analyst, securities analyst, research analyst, equity analyst, or investment analyst is a person who performs financial analysis for external or internal clients as a core part of the job.-Job:...
departments of ten of the largest investment firms in the United States. The investment firms involved in the settlement had all engaged in actions and practices that had allowed the inappropriate influence of their research analysts by their investment bankers seeking lucrative fees. A typical violation addressed by the settlement was the case of CSFB and Salomon Smith Barney, which were alleged to have engaged in inappropriate spinning of "hot" IPO's and issued fraudulent research reports in violation of various sections within the
Securities Exchange Act of 1934The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
. Similarly, UBS Warburg and
Piper JaffrayPiper Jaffray & Co. , often shortened to just Piper Jaffray or PiperJaffray, is a U.S. middle-market investment banking firm based in Minneapolis, Minnesota, and sells financial advice, investment products, and transaction execution within targeted sectors of the financial services marketplace...
were alleged to have received payments for investment research without disclosing such payments in violation of the
Securities Act of 1933Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...
.
Enforcement Actions
As part of the settlement decision published on December 20, 2002, several regulations designed to prevent abuse stemming from pressure by investment bankers on
analystsA financial analyst, securities analyst, research analyst, equity analyst, or investment analyst is a person who performs financial analysis for external or internal clients as a core part of the job.-Job:...
to provide "favorable" appraisals were instantiated. Namely, these firms would have to literally insulate their banking and analysis departments from each other physically and with Chinese walls. Additionally, budget allocation via management in research departments will be independent of investment departments. Research analysts will also be prohibited from going on
pitches and
roadshows with bankers during advertising and promotion of IPOs. Similarly, the Global Settlement also increased the IPO "quiet period" from 25 days to 40 days. Finally, research analyst's historical ratings must be disclosed and made available.
Other than these regulatory actions, the firms involved in the settlement have been required to pay fines to their investors, to fund investor education, and to pay for independent third-party market research. A total fine of $1.435 billion was assessed and is described in the table below
Settlement payments
| Name Of Firm |
Retrospective Relief
($ millions) |
Independent Research
($ millions) |
Investor Education
($ millions) |
Bear Stearns & Co. LLCThe Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
|
50 |
25 |
5 |
Credit Suisse First Boston Corp.Credit Suisse First Boston was the former name of the banking firm Credit Suisse.-History:In 1978, Credit Suisse and First Boston Corporation formed a London-based 50-50 investment banking joint venture called the Financière Crédit Suisse-First Boston...
|
150 |
50 |
0 |
Deutsche BankDeutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
|
50 |
25 |
5 |
Goldman SachsThe Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
|
50 |
50 |
10 |
| J.P. Morgan Chase & Co. |
50 |
25 |
5 |
| Lehman Brothers Inc. Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...
|
50 |
25 |
5 |
Merrill Lynch & Co., IncMerrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
|
100 |
75 |
25 |
Morgan StanleyMorgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
|
50 |
75 |
0 |
| Salomon Smith Barney, Inc. |
300 |
75 |
25 |
| UBS Warburg LLC |
50 |
25 |
5 |
| Total: |
900 |
450 |
85 |
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